This Selected Issues paper examines the role of information and communication technology (ICT) in the recent acceleration of labor productivity growth in the United States. The analysis reveals that the increase of total factor productivity (TFP) growth is a broad phenomenon that encompasses non-ICT producing sectors, consistent with the view that ICT is a “general purpose technology.” The paper investigates whether the productivity boom may have dampened employment in recent years. It also assesses the contribution of immigrants to the United State economy.


This Selected Issues paper examines the role of information and communication technology (ICT) in the recent acceleration of labor productivity growth in the United States. The analysis reveals that the increase of total factor productivity (TFP) growth is a broad phenomenon that encompasses non-ICT producing sectors, consistent with the view that ICT is a “general purpose technology.” The paper investigates whether the productivity boom may have dampened employment in recent years. It also assesses the contribution of immigrants to the United State economy.

VII. U.S. Trade with China: Trends and Policies81

1. This chapter analyzes recent trends in U.S.-China bilateral trade and policies. It suggests that the rapid growth of U.S. imports from China has largely displaced other foreign suppliers, with limited impact on the U.S. manufacturing sector. U.S. exports to China have also risen rapidly, but remain much smaller than corresponding imports. Although concerns have been raised in the United States over increased competition from Chinese producers, U.S. trade policy has focused mainly on enhancing U.S. market access in China and encouraging implementation of China’s WTO commitments. By contrast, U.S. resort to defensive trade remedies has been relatively restrained.

A. The Impact of Trade with China

2. U.S. imports from China have grown rapidly, and Chinese producers have captured an increasing share in the U.S. market (Table 1). Since 1998, imports of goods from China have grown at an average annual rate of 17 percent, compared to a 7 percent growth rate for total imports. As a result, China’s market share in U.S. goods imports has risen by half—from 8 percent to 12½ percent—and the share of U.S. consumer goods provided by China has doubled from slightly above 2 percent to 4 percent during the same period.82 This growth has been concentrated in a relatively small number of product categories, particularly electronics and textiles.83

Table 1.

United States: External Merchandise Trade

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Sources: BEA; Fund staff calculations.

In percent.

3. The expansion of China’s U.S. market share has been accompanied by a significant drop in Japan’s share. This decline appears to at least partly reflect a shift within Asia of export-oriented, labor-intensive production to China.84 Other exporters in the region have maintained more stable market shares, but there have been significant reductions in specific products. For example, Korea lost trade shares in computers and telecommunications equipment, possibly reflecting the increasing prevalence of “triangular” trade flows in East Asia, with China the location for the manufacturing or assembly of inputs originating in neighboring economies.85 In the case of Mexico, recent declines in its exports of auto parts, electronic equipment, and some textiles categories to the United States may also reflect competition from China.

4. The standard “constant market share” approach is used to analyze the extent to which Chinese imports have displaced other foreign and domestic producers. This approach involves decomposing the growth of aggregate imports in the following manner:


where MUS are aggregate U.S. imports, w is the market share of China (CH) and the rest of the world (RoW) in the U.S. market, respectively, and hats represent rates of change relative to a chosen benchmark period. The approach assumes that if the competitiveness of all trading partners were to remain unchanged over a period, their market shares would also stay unchanged. Relative to the benchmark year, China’s gain from the rise in its import market share (which equals the displacement of other foreign producers in the U.S. import market) is equal to w^CHMUS. Moreover, since it holds that


where AUS is domestic absorption, and wUS and wM are the shares of domestic and foreign-produced goods in domestic absorption, respectively, the impact on domestic producers can be calculated residually.

5. The analysis suggests that China’s rising market share has primarily displaced other foreign suppliers, while the impact on U.S. manufacturing has been limited.86 With 1993 chosen as the benchmark period, the results indicate that most of the $80 billion increase in Chinese trade between 1998 and 2003 displaced goods provided by other foreign suppliers (worth around $70 billion), with domestic producers losing around $10 billion (slightly less than 0.1 percent of GDP) in sales (Table 2). A similar result has been found for the 1993–1998 period (see Noland, 1998, and Hufbauer and Rosen, 2000, for comparable analysis using more disaggregated data over earlier periods).

Table 2.

Constant Market Analysis of U.S. Merchandise Trade with China

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Source: Fund staff calculations.

Using 1993 as benchmark year.

6. This finding is supported by the lack of widespread sectoral evidence showing a detrimental impact of Chinese imports on U.S. manufacturing (Table 3). In the furniture and electronic goods sectors, for example, an increase in Chinese market share has occurred in tandem with rising domestic output, stable employment, and increasing real wages. While employment and real wages have fallen in the textile and apparel sectors, Chinese imports have played a relatively small role because a substantial part of Chinese textiles have been subject to import quotas under the Agreement on Textiles and Clothing slated to expire in December 2004. By contrast, in the leather and shoe-producing sector, where domestic employment and real wages have also fallen, China accounted for the entire growth in U.S. imports. Like in the electronics sector, however, data limitations preclude an exact matching of domestic production and import data.

Table 3.

Key Macroeconomic Indicators for Specific Sectors, 1987-2001

(Change in percent, unless otherwise indicated)

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Source: Fund staff calculations.

In percentage points.

7. U.S. exporters have benefited from growing Chinese demand. Over the past five years, the value of merchandise exports to China grew by an annual average of 15 percent, compared with overall export growth of slightly over 1 percent per year.87 More than one-third of this growth has been driven by four products—soybeans, cotton, organic chemicals and semiconductors—but other sectors have also benefited, including computer accessories, vehicle parts and telecommunications machinery.88 U.S. exports of services to China have also grown rapidly, largely in education, professional services, and royalties and fees from the use of computer software. With services exports to China reaching $6 billion in 2002 (equivalent to about one-quarter of goods exports), the United States runs a bilateral surplus of $2 billion in the services trade.

8. Nevertheless, the overall U.S. trade deficit with China has risen to over one percent of U.S. GDP (Figure 1). With exports and imports both growing rapidly, this largely reflects the fact that Chinese merchandise exports to the United States are almost six times the reciprocal flow. However, China’s share in the U.S. trade deficit has stayed roughly constant since 1998, suggesting the possibility that the bilateral deficit with China may reflect the United States’ broader saving-investment imbalance.89

Figure 1.
Figure 1.

U.S. Trade Deficit with Partner Countries

Citation: IMF Staff Country Reports 2004, 228; 10.5089/9781451839562.002.A007

Source: Bureau of Economic Analysis.

9. U.S. manufacturers appear to increasingly prefer penetrating the Chinese market through foreign direct investment (FDI). This seems to reflect a combination of “pull” and “push” factors, including strategic considerations by U.S. companies—reflecting China’s economic size and potential—as well as policies that encourage local production in sectors such as semiconductors, fertilizers, and automobiles, including differential tax treatment (USTR, 2004a). Sales of majority-owned U.S. affiliates in China reached over $30 billion in 2001, close to double the amount of U.S. goods exports to China that year, and almost fifteen times the equivalent sales of Chinese affiliates in the United States. Indeed, U.S. affiliates’ sales rose by more than half in the past two years, reflecting both underlying demand growth in China and a trend rise in U.S. FDI, focused on computer and electronic products as well as electrical equipment and appliances.

B. U.S. Trade Policy Toward China

10. Market access for U.S. goods, services, and investment has been viewed as an integral component of U.S. trade policy vis-à-vis China. Following the normalization of trade relations in 2000 and China’s WTO membership in 2001—both of which have formed a part in the significant opening of China’s trade regime—a series of regular bilateral consultations has provided a framework for addressing market access issues.90

11. A key U.S. interest has been to obtain access for agricultural goods (USTR, 2004b). U.S. concerns have centered on what is being perceived as an opaque application of sanitary and phytosanitary standards to commodities produced with the help of biotechnology, most notably soybeans, and possibly burdensome procedures for administering the tariff-quota (TRQ) system for bulk commodities such as wheat, corn, and cotton.91 Although difficult to quantify, the impact of such actions could potentially be significant, given that U.S. agricultural exports to China have reached nearly $5 billion in 2003 and China is already the largest external market for U.S. soybean and cotton. Negotiations to resolve differences have been frequent, and progress has been made in certain areas. In February 2004, the Chinese government approved permanent safety certificates for the import of several biotechnology crops. China has also agreed to adopt U.S. proposals for labeling meat and poultry, and an agreement on China’s TRQ system is under negotiation.

12. Progress has been made in a number of areas concerning the services trade, including in the maritime sector, but important issues remain. In the case of financial services, while China has introduced some relevant legislation in this sector, remaining U.S. concerns have centered on China’s high capitalization requirements and the lack of transparency in the licensing of financial institutions (USTR, 2004b). Liberalization of the Chinese insurance market is of key interest to the United States, with estimates suggesting potential turnover for U.S. companies could reach $15 billion once the market was fully opened. In the area of trading rights and distribution services, concerns stem mainly from alleged delays in the implementation of China’s liberalization schedule as per its WTO commitments.

13. The enforcement of intellectual property rights (IPRs) in China has also been a top priority of the United States. China’s track record in complying with bilateral understandings on IPRs and enforcing relevant legislation has been criticized, and “Section 306” monitoring has been in force since 1996.92 The issue has taken on greater prominence in recent years, owing to the increasing export of China-made counterfeit products. In 2003, China accounted for two-thirds of all U.S. Customs and Border Protection seizures of IPR-infringing goods.93

14. In April 2004, China committed to undertake a series of near-term actions to improve IPR enforcement. These include legislative reforms aimed at lowering thresholds for applying criminal sanctions for acts of IPR infringement and an active crackdown of counterfeit production, distribution and exports through inspections, higher penalties, stronger customs regulations and public awareness campaigns. In addition, China pledged to accelerate efforts to ratify and join the World Intellectual Property Organization (WIPO) Internet treaties and continue audits to enforce the use of legitimate software, including by local governments.

15. China has also been at the receiving end of U.S. contingent protection measures in recent years. China accounted for 15 percent of total outstanding U.S. antidumping (AD) orders and countervailing duties as of February 2004, and has been subject to considerable AD action by other countries (Table 4). The United States has also made use of a special textile safeguards clause under China’s WTO accession agreement, albeit sparingly.94 These actions have only affected a small proportion of Chinese imports. However, contingent protection can create uncertainty regarding future trade relations and may impact on investment decisions. In addition, empirical evidence suggests that such actions are a relatively inefficient way of supporting domestic producers, given that trade can be diverted from named to non-named countries.95

Table 4.

Number of Antidumping Actions Initiated Against China

(July 1-June 30)

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Source: Reports of the WTO Committee on Anti-Dumping Practices.


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Prepared by Katerina Alexandraki.


For analytical purposes, this paper has used U.S. sources for trade data. These differ from bilateral trade data produced by China largely due to the inclusion of entrepôt trade through Hong Kong into imports from China.


Together, computer equipment, apparel, household goods and toys, furniture, appliances, and television receivers, as well as business, telecommunications, and photographic machinery, have contributed to well over half of China’s gains in U.S. market share over the last five years.


This is illustrated by the fact that the standard deviation of the combined share of Japanese and Chinese imports in the U.S. market was 1.1 as opposed to 3.9 for Japan and 3.3 for China separately.


The calculation is based on nominal as opposed to real trade statistics because deflators for Chinese exports are not available. This would lead to a downward bias in the results if prices of Chinese goods had been growing more slowly than those of U.S. goods and other foreign suppliers. On the other hand, the formula ignores second order interactions which in this case would tend to overstate the impact—approximating for such second-order effects reduces China’s displacement by around $5 billion.


Intra-company trade appears to have accounted only for a small part of U.S. export growth to China. Data provided by the Bureau of Economic Analysis suggest that the share of intra-company sales in total U.S. exports to China has fluctuated between 7 and 14 percent since the mid 1990s. Only in 1999 did exports to affiliates appear to account for 23 percent of total exports to China.


Hufbauer and Rosen (2000) argue that wages in export-oriented industries are, on average, 15 percent higher than those in import-competing industries. Therefore, the jobs created by exports to China may pay higher wages than equivalent import-competing sectors.


Considerable attention in explaining China’s export growth has also been paid to the role of trade barriers and exchange rate policy. For a discussion see, for example, IMF (2004).


China’s average tariff was 12.3 percent in 2002, compared to 23.6 percent in 1996. Some outstanding market access issues, such as the pace of implementation of China’s trade liberalization commitments, or the case against its VAT-rebate policy for semiconductors, are currently being addressed at the WTO.


U.S. exporters have pointed to delays and a lack of transparency in TRQ allocations; delays in the naming of importing enterprises; evidence of discrimination between state and non-state trading enterprises; and the lack of automatic import licensing for these commodities.


Section 306 monitoring implies that the USTR can move directly to the application of trade sanctions against China if there is a slippage in the enforcement of bilateral IPR agreements.


According to the International Intellectual Property Alliance, losses from piracy in China could have exceeded $1.5 billion in recent years (International Intellectual Property Alliance, 2002).


This right was exercised for the first time in December 2003, when quotas were placed on imports of three textile products from China (brassieres, robes, knit fabric), following a determination that market disruption or a threat thereof existed for the domestic textile industry.


Prusa (1996) finds that non-named country imports rise by 22 percent in the first year of trade actions, with more trade diversion in high-duty cases. Two thirds of the AD cases involving China did not involve another country, while China’s status as a “non-market economy” has typically translated into relatively high duties.